HANOI – VIETNAM’S central bank on Tuesday cut the benchmark interest rate by one percentage point to 13 per cent in a bid to free up credit for enterprises amid the global financial crisis.

The monetary loosening reverses a series of three hikes this year, from 8.25 per cent to 14 per cent, which had aimed to reduce liquidity and curb the country’s double-digit inflation.

The State Bank of Vietnam (SBV) said in an online statement that the year’s first benchmark rate cut was ‘designed to make more capital available to commercial banks to increase liquidity and cut lending rates.’

‘As a result local cash-strapped companies will have the opportunity to get bank loans in order to maintain business and promote investment,’ the SBV said in an online statement published late on Monday.

It warned banks to manage capital cautiously and ‘prepare risk prevention measures against the effects of the global financial turmoil.’

Vietnam, a major producer of manufactured goods such as garments and footwear and commodities including rice, coffee and seafood, could be hit hard by downturns in the US, Europe and other export markets.

The state-run Vietnam News Agency said ‘top policy-makers are concerned that the difficulties faced by local companies may badly affect this year’s seven percent economic growth target.’

The SBV also cut the refinancing rate to 14 per cent from 15 per cent and the discount rate by one percentage point to 12 per cent.

Overnight interest rates for electronic and compensation payments on the inter-bank market were reduced to 14 per cent from 15 per cent.

The bank doubled the interest rate it pays on compulsory reserves for banks to 10 per cent.

It also said it would buy back more than 20 trillion dong (S$1.77 billion) of compulsory bills it had sold in March to curb inflation, which last month slowed to 27.9 percent from 28.3 per cent in Aug. — AFP